Saturday 12 September 2009 19.05 EDT
First published on Saturday 12 September 2009 19.05 EDT

The Co-op, which boasts about its ethical credentials, has been accused by farmers of making "unreasonable" demands and flexing its market muscle in the wake of its £1.6bn takeover of Somerfield.

The grocer is said to have asked for "guaranteed" 50% margins and a longer payment window, prompting one large grower to seek advice from both the National Farmers' Union (NFU) and the Office of Fair Trading (OFT).

According to the NFU, recent negotiations with the Co-operative Group have caused "widespread dissatisfaction" among fresh produce suppliers, who fear their products could be discounted in the regular price wars that occur in the sector and that they would have to foot the bill.

It is understood the OFT said the case did not breach the existing supermarkets code of practice, which has been widely criticised for failing to protect suppliers' interests. Indeed, tightening up the code was one of the results of the recent Competition Commission (CC) inquiry into the UK's £130bn grocery market.

A new code, under which the farmer's complaints might have attracted scrutiny, does not come into effect until February.

Terry Jones, the NFU's head of government affairs, said: "We were surprised by the demands made by the Co-op, not least given their recent advertising campaign which played up their responsible approach to retailing. This strengthens the case for an ombudsman."

The Co-op's purchase of Somerfield in March made it the UK's fifth largest supermarket, with 3,000 stores and sales of £7bn. Recent data from TNS suggests merging the businesses is affecting sales, with the combined group posting market share losses over and above that sacrificed as a result of store disposals.

The Co-op said negotiations with suppliers were confidential: "When putting our business out to tender, we are seeking to achieve long-term relationships with suppliers which will be of mutual benefit. It is in neither party's interest to commit to terms which are unsustainable nor is it in our long-term interests to force unreasonable terms on suppliers which will lead to a reduction in our supply base." The spokesman added the Somerfield integration process was "going well".